Peugeot First-Quarter Revenue Exceeds Estimates on China

PSA Peugeot Citroen, Europe’s second biggest carmaker, beat analyst estimates for first-quarter revenue as delivery growth in China and Latin America limited a decline caused by a recession in its home region.

Peugeot shares rose the most in 3 1/2 months after posting sales of 13 billion euros ($16.9 billion). Revenue, which fell 6.5 percent from a year earlier, exceeded the 12.7 billion-euro average of eight analyst estimates compiled by Bloomberg. Deliveries, excluding component kits for assembly, fell 2.5 percent to 674,200 vehicles.

The European car market, contracting a sixth consecutive year, may shrink 5 percent in 2013, Peugeot said. The company’s first-quarter vehicle sales rose 25 percent in Latin America and 31 percent in China. Peugeot reiterated plans to cut automotive-unit cash consumption in 2013 by half to 100 million euros and break even in operational cash flow by the end of 2014.

“We continue to remain skeptical about PSA achieving this, but confirmation should provide some comfort,” Philip Watkins, a London-based analyst at Citigroup Inc., said today in a report to investors.

Peugeot jumped as much as 11 percent to 6.02 euros, the biggest intraday gain since Jan. 7, and was up 9.1 percent at 9:20 a.m. That propelled the stock to an 8.7 percent increase this year, valuing the carmaker at 2.11 billion euros.

Europe’s Role

The manufacturer of the Peugeot 208 hatchback and Citroen C4 sedan posted a 576 million-euro operating loss last year as price cuts failed to win buyers amid a recession among countries using the euro. Europe accounted for 62 percent of the company’s deliveries and 68 percent of revenue in 2012.

Peugeot’s first-quarter deliveries in Europe fell 15 percent, according to the ACEA car-industry group. Including figures from Albania and former Yugoslavian countries, vehicle sales in the region dropped 17 percent, and its market share narrowed to 12.3 percent from 12.9 percent a year earlier, Peugeot said today. Russian sales plunged 27 percent.

The manufacturer’s earnings-restoration strategy includes eliminating 11,200 jobs in France, or 17 percent of its domestic workforce, closing a car factory in the Paris suburb of Aulnay and developing new models and cooperating on parts purchases with Detroit-based General Motors Co.

The Aulnay site, scheduled to be shut next year, may be closed as early as 2013 as strikes disrupt production, Chief Financial Officer Jean-Baptiste de Chatillon said today on a conference call with analysts. A further contraction in Europe’s automotive market in 2014 may make new savings measures necessary, he told journalists on a separate call.

‘Competitiveness’ Talks

“These measures include the start of negotiations with French unions about competitiveness, and the possibility of adapting capital expenditures,” de Chatillon said. He declined to say whether Peugeot is looking at widening its job-cut targets. The workforce was reduced by more than 1,300 positions in the first quarter, he said.

Chief Executive Officer Philippe Varin laid out a strategy in February for Peugeot to deliver 50 percent of its vehicles outside Europe by 2015. Gregoire Olivier, head of Peugeot’s Asian operations, raised the company’s sales target in China for this year by 11 percent on April 20, saying he’s “very confident” the manufacturer will reach a 5 percent market-share target in the country by 2015.

New models going on sale globally this year include the Peugeot brand’s 2008 crossover, as well as new versions of the C4 Picasso minivan and DS3 compact.

Currency Effects

Exchange-rate effects held back first-quarter revenue by about 2 percent, with the Argentinian peso and U.K. pound among the currencies having the strongest influence, de Chatillon said. At the same time, raw-material costs declined, “so we’re pretty close to our budgetary targets,” he said. Joint component purchases with GM under the alliance have begun, the CFO said.

The manufacturer arranged last year for French state guarantees on as much as 7 billion euros of new bond sales by its Banque PSA Finance car-lending arm, as well as 11.5 billion in refinancing for the unit, to maintain an investment grade for the division at Moody’s Investors Service.

Moody’s Rating

Moody’s cut the banking arm one level into junk on April 16, following a reduction of the parent company’s debt to four steps below investment grade five days before. Banque PSA remains hampered by the vehicle sales drop at Peugeot because its loans are restricted to the parent company’s brands, the credit-reporting company said. Peugeot responded that the state guarantee and the debt refinancing keep Banque PSA “protected against any further downgrade.”

Peugeot allocated a board seat to the French state and to a labor representative in return for the government’s backing of the bank division’s debt. The European Union is reviewing the guarantees because of rules limiting state aid to private companies. It granted temporary approval in February to French government coverage of a 1.2 billion-euro debt sale. The lending arm sold a bond of that size last month.

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